May is that time of the year in France when we have to think about tax and how much we are paying on our income, as the deadline for submitting income tax returns is coming up in a few weeks’ time (the exact date will depend on your department).
French tax residents are liable on their worldwide income and gains, while non-residents need to declare their French-source income.
When you are calculating how much tax you owe on last year’s income, take the opportunity to establish what you could do to reduce your tax liabilities going forward, particularly on your investments.
Consider how much tax you will be paying over the coming years on all your assets, whether they are in France, the UK or elsewhere.
Could you use more tax-efficient arrangements to hold your investment capital? Is it worth keeping hold of UK assets if you see France as your permanent home?
Your French tax return and UK income
UK nationals who are tax-resident in France need to take care to declare any UK income correctly, following the rules of the France/UK double taxation treaty.
You need to report all your UK-source income in France, even if you pay tax on it in the UK.
French tax authorities automatically receive information on their taxpayers’ overseas assets and income through the global Common Reporting Standard.
They compare this information with that declared on the annual tax returns, so getting it wrong would prove costly in the long run.
- UK government service income Unlike other UK pension income, government service pensions remain taxable in the UK. Although the income is not taxed directly in France, you must still include it as part of your taxable income – a credit equal to French income tax and social charges will then be given.
- UK rental income The same rules apply as government service pensions above. UK rental income is taxed in the UK, not France, but must be included on your French declaration.
- Capital gains on UK assets As a French resident, you need to declare and pay tax on gains made on the sale of UK property and moveable assets (shares, etc). Real estate gains are liable to tax in both countries, but you receive a credit in France for UK tax paid. Moveable assets, however, are generally taxed in the country where the seller is resident.
- UK savings and investments You need to declare interest or dividends from the UK within 15 days of the month end and pay the 30% tax (the Prélèvement Forfaitaire Unique, or PFU). This is then offset against the tax due on your tax return. ISAs and Premium Bond winnings are fully taxable in France in the hands of French residents and so are not tax-efficient here.
Points to consider from the UK Budget
While you may be focusing on your French tax liabilities this month, your tax burden will include your UK assets too, so you need to be aware of Budget measures that affect you, and consider what you can do to protect yourself.
The UK March 2021 Budget included minimal tax changes this year, but – importantly – many allowances have been frozen for five years.
This means you will gradually pay more tax on your UK income (eg. rental income) and find your UK capital gains tax liability is rising.
- Income tax The UK personal income tax allowance threshold increased from £12,500 to £12,700 on April 6, and the higher rate threshold to £50,270. But these thresholds will now remain frozen until at least April 2026. This is a move which is estimated to net the Treasury an extra £8billion in the 2025-26 tax year.
- Capital gains tax The threshold did not increase this year and will remain frozen at £12,300 for individuals (£6,150 for most trusts) until 2026, with tax rates at 10% and 28%.
- Don’t forget that, in recent years, non-UK residents became liable for capital gains tax on most UK property and land, whereas previously they were exempt. Be aware that if your total worldwide real estate portfolio is valued at over €1,300,000, you are liable for Impôt sur la Fortune Immobilière (IFI) – France’s annual property “wealth tax”. If you own investment property in the UK, it might be worth weighing up your combined tax liabilities against what you could pay if you invested the capital in a tax-efficient investment arrangement in France.
- Pensions lifetime allowance (LTA) This will not increase with inflation as planned and stays at £1,073,100 until 2026. If your combined UK pension benefits are near this threshold, be aware that future capital growth could take you into the LTA net and you could be faced with penalties of 25% or 55%. Transferring your pension out of the UK and into a Qualifying Recognised Overseas Pension Scheme (Qrops) would make your pension assessible for the lifetime allowance at the time, but would escape later LTA penalties.
- UK inheritance tax Both the standard nil rate band (already frozen since 2009!) and residential nil rate band are frozen for five years, at £325,000 and £175,000 respectively. The Treasury expects to generate an additional £15million next year as a result, increasing to £445million by 2026.
France’s tax return time and the UK Budget are both good prompts to think ahead and review your tax planning to check you are making the most of all the available tax-efficient opportunities in both France and UK.
Cross-border tax planning is complex, so specialist professional advice is essential, from an adviser with expertise in both French and UK tax regimes and how they interact.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our, Blevins Franks, understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.